Taseko Mines Ltd (TGB) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Taseko Mines Third Quarter 2012 Earnings Conference Call. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Brian Bergot. Sir, you may begin.

Thank you, Shannon. Good morning, ladies and gentlemen, and welcome to Taseko Mines third quarter 2012 results conference call. My name is Brian Bergot, and I am the Director Investor Relations for Taseko.

With me today in Vancouver is Russ Hallbauer, President and CEO of Taseko; John McManus, Senior Vice President Operations; and Peter Mitchell, Taseko's Chief Financial Officer.

After opening remarks by management, which will review third quarter business and operational results, we will open the phone lines to analysts and investors for a question and answer session. Accompanying management's discussion will be presentation slides (inaudible) participants. Alternatively, the presentation can be found in the Investor Relations section of our Website.

I would also like to remind our listeners that our comments and answers to your questions may contain forward-looking information. This information, by its nature, is subject to risks and uncertainties and may cause the stated outcome to differ materially from the actual outcome. Please, refer to the bottom of our latest news release for more information.

I will now turn the call over to Russ for his remarks.

Good morning, everyone. Thank you for joining us today to discuss our third quarter results and to provide you with an update on our various corporate activities since the last time we spoke.

Continuing with the formula we developed for this call a few quarters back, both myself and Peter have some slides to walk you through over the course of the presentation to help everyone get the best possible understanding of our activities.

Gross profit for the quarter was approximately CAD12 million generating adjusted net earnings of roughly CAD0.01. Our operating profit in the quarter was affected by spending more dollars for roughly the same copper production in Q2 as a result of a number of factors tied to the GDP tie-in and exacerbated by a number of other issues but the primary one being recovery, which I will speak about a little later in the presentation.

There is more to this explanation than just that, however. And, rather than go through all those points, I urge you to go to our MD&A for the quarter and the review of operations and projects on page 4, which really gives a clear explanation of what has occurred as far as our costs this quarter. You should be able to glean where the opportunities exist going forward, as well as get an appreciation of how the go-forward aspect of our business in terms of mine profitability is going to be over the near term.

As an executive group, we are comfortable with where we have gotten GDP to at this time, and we're really looking forward to firing up GDP3 and getting to work on it.

Starting on page 4 of the presentation, looking at slides numbered 4, 5, and 6 on mill throughput, we are effectively, in slide 6, at design capacity, exclusive of those periods where we've been down for GDP3 tie-in work. And you can see those as a little dip in the daily throughput tonnages. The SAG mill is not at this time being worked very hard. In fact, we're only at 90% power drawn its electric motors, as we've idled back somewhat as we work on our downstream recoveries. There's no sense pushing throughput at the expense of recoveries, as you can see in the following slide.

Our focus now is ensuring our recoveries as per budget levels of 89% across all different mineralogies that we encounter. And, as you can see in slide 7 from this production chart -- you can see that we had 82.8% recovery for the quarter. So, obviously, we have some work to do with respect to the recovery issues, although, over the past few weeks, we made some significant headway in ramping that percentage up towards design targets.

The primary reason for reduced recovery is, when we struggled with throughput months ago, we effectively over-ground material in the SAG. Now that we have the material getting through the SAG mill because of new, great slot sizes and pulp lifters and discharge ports being now optimal, we now need to concentrate on the ball mill downstream to sort the recovery issue out. And each day we are resolving those bottlenecks. And John and I can either talk to that -- about those issues later in the presentation in the Q&A.

The next slide, page 8, shows our SAG mill in nearly completion. This was a picture taken in the middle of the last quarter.

Slide 9 shows the flotation cells in a similar timeframe. So you can see that the guts of the SAG mill building and the internal workings of our new concentrator are coming through construction very nicely.

A big component of the construction timeline has been tied up with, obviously, the wiring. And, in the next slide, in slide 10, you can see the wiring trays and the plethora of wire that needs to be pulled through those trays for the automation business of the flotation and grinding circuit.

In approximately three weeks, we'll be wet commissioning our new moly plant, and, a month after that, GDP's new SAG mill should be online, taking pit feed, we expect, somewhere near the yearend.

Slide 11 is our updated forecast for GDP3. Again, I want to reiterate we're on time and on budget with CAD220 million having been spent of committed so far. We see minimum risk to our budgeted number. In fact, if you look at the far right, you can see that, August of this year, we said that risk to the budget was approximately CAD20 million. We've now reduced that to CAD14 million. So we expect, by time that we're completed, that we will be virtually on budget. So that's a pretty significant accomplishment.

As you can imagine, we're extremely pleased with these results we've achieved at GDP3, from approval to production, on time and on budget, in under 18 months and, in retrospect, so should our shareholders in terms of project completion and ensuring that we adhere to proper capital spend.

In fact, we have built the lowest-cost production capacity increase per ton of installed capacity of any large mine developer in the world over the last five or six years. So that's -- I think that's pretty impressive for a little company like ours. For example, Highland Valley Copper, 100 miles to the south of us, recently announced a CAD475 million upgrade to just their flotation circuit. They have been at it for less than six months and already inflated that cost to CAD550 million.

So, with this project, maintaining capital discipline has been very important, and the end result is our projected 35% internal rate of return on this build-out. So we're doing a lot of things correctly in this organization.

If we look at the next slide, you can see the construction highlights that we've completed. The overland conveyors are completed and tied in, and they've been turned over to operations. Our switchyard is ready to commence testing. I believe it's been energized already, John? Yes. All our prefabricated electrical rooms and our grinding mill installation is nearly completed, as you saw in the previous pictures. And our piping and electrical installation has commenced and is proceeding as we speak right now.

On slide 14, looking to -- if we look at the next slide, you can see the construction timelines. And, as I said, we're on time and on budget.

On slide 14, looking forward to 2013, we have estimated mill throughput targets for both the two SAGs, depending on GDP3 de-bottlenecking of 12 million to 14 million tons in the first half of the year followed by 14 million to 15 million tons in the second half of the year. We believe that is a completely doable set of criteria. And, like I said, we look forward to unlocking the capabilities of our new SAG mill and having the flexibility that having two completely independent grinding and flotation circuits will provide us.

By this time, we will have a run rate -- by this time next year, we'll have a run rate of approximately 85,000 tons per day, which will make Gibraltar the fourth-largest copper concentrator in North America, only Bingham Canyon, Highland Valley Copper, and Sierrita owned by Freeport-McMoRan being larger. So, frankly, I don't think many folks really appreciate that aspect of what has been accomplished at Gibraltar.

Stepping forward, in slide 15 is some outlines on our New Prosperity project. We submitted our final EIS on September 20 of this year. And, as illustrated, the panel has the following maximum timelines before them. We expect the panel to wind up its work in the new year and its report ready to be filed with the ministry of environment and the federal government for a decision in mid 2013.

The path forward on Prosperity will be we will finalize our offtake agreements, as illustrated in slide 16, over the coming months. We complete the financial arrangements to ensure we're fully funded for this project. And, once we receive federal approval, we will commence detailed engineering.

If we look at the next slide, slide 16 (sic - see slide 17), our Aley project is moving ahead very nicely. We will have our metallurgical work and process flow sheet completed by the end of this month. We will be submitting a project description to the government in December, and this will begin the environmental review process. We will likely make ferroniobium metal in the pilot plant in early 2013. And we will file a 43-101 reserve complementary with that undertaking sometime in early half of next year.

Our market research has indicated that we can sell all the ferro we produce, which we expect to be somewhere approaching 12 million pounds annually. So, if one wants to figure out the merit or magnitude of the profitability of Aley going forward, just look at IAMGOLD's Niobec mine because we will have roughly the same production capacity, and you'll get some idea of what Aley could mean to the Company in the next few years.

The project economics will be released once we complete our 43-101 report. Suffice it to say the development of Aley will have a similar economic impact in this Company as our 75% interest in Gibraltar. We will begin offtake agreements, likely, during 2013.

Any questions on that -- on Aley or Prosperity we'll be happy to take in the Q&A.

I'd like to now turn the call over to Peter to discuss our financial results.

Revenue for Q3 2012 was CAD61 million, a 28% decrease compared to Q3 2011, and that was a result of decreased sales volume and lower average copper selling price in the 2012 period.

Our finished goods inventory, our copper concentrate, was just shy of CAD9 million, up from CAD5 million at the end of the second quarter.

Gross profit was CAD11.7 million for the third quarter, 26% lower than the previous quarter, again, due to the higher production costs and lower selling prices.

G&A costs were CAD3.7 million in the third quarter, and they are tracking below last year due to the lower stock-based compensation costs this year.

Exploration and evaluation costs were CAD6.8 million in Q3 2012 and CAD16 million on a year-to-date basis based on our spending on New Prosperity and Aley. For clarification, all of these exploration costs related to the projects and evaluation costs are expensed, and that equates with CAD0.08 per share on a year-to-date basis. Despite following this accounting approach, we believe that we are creating enduring value for the Company with these expenditures. A recent KPMG mining financial reporting survey reported that 60% of the 20 surveyed companies, not including Taseko, capitalized a portion of these expenses, which is acceptable under IFRS rules with obvious short-term benefits to their earnings. Taseko has opted for the more conservative approach with the unfortunate near-term unfavorable earnings impact.

Other operating expense of CAD8.9 million include unrealized gain from the copper hedge mark-to-market of CAD8.5 million. The unrealized component is subject to constant fluctuations and doesn't affect cash.

Finance expense of CAD3.2 million includes our bond interest and accretion on our provision for environmental rehab. We continue to capitalize a portion of the bond interest during our GDP3 construction phase.

Income tax recovery in the quarter was CAD3.3 million. It reflects an effective tax rate of 46%.

We had a net loss of CAD3.9 million, or CAD0.02 per share. Adjusting our earnings for the various items that we include yields quarterly earnings of CAD1.5 million and adjusted earnings of CAD0.01 per share versus a loss of CAD0.01 on an adjusted basis for Q3 last year.

Cash and net working capital were CAD200.8 million and CAD194.2 million, respectively, at the end of Q3 2012. In addition to cash, longer-term money market investments included in other financial assets totaled CAD20.1 million at quarter end.

We continued our buyback of Taseko shares under our NCIB and spent CAD20.9 million on a year-to-date basis to buy back over 6.6 million shares.

In addition, we extended our copper hedge into the second half of 2013 with the purchase of $2.75 per pound puts for about 2,000 tonnes per month. We will likely augment this position once production budgets for 2013 are finalized. The cost of the puts was slightly less than [$0.17] per pound.

In conclusion, from a financial perspective, Taseko remains strong through these turbulent times. We have over CAD200 million in cash, long-term capital in place, a fully funded Gibraltar expansion on budget, and copper hedged through 2013.

Operator, I'd now like to open the call for Q&A. Thank you.

(Operator Instructions). Orest Wowkodaw, Canaccord Genuity.

I wanted to get a little bit of color on the recoveries. Clearly, they were -- they came down quite a bit in the third quarter to just below 83%. And I realize that's related to the tie-in. But how do you see that increasing kind of on a go-forward basis? Should they stay at those levels in the fourth quarter? And should we anticipate a gradual improvement back up to that 87% or 88% by the end of next year? Any color would be appreciated.

Yes. Actually, the recovery drop didn't have anything to do with GDP3 tie-in. It was about getting the throughput up in the current concentrator. So, when we put in the large-opening grates back in June/July, the discharge grates, what happens is we've got a much coarser grind coming out of the SAG mill. But that's actually what it was designed to do. Then that coarse grind reported to the six ball mill circuit, and we ended up with a distribution issue where some of the ball mills were receiving a larger portion of the coarse grind. So it's taken us a while to work our way through that. We're back up in the 86% to 87% recovery now and plan to take that back up 88% or 89%, and we're maintaining our throughput.

Okay. So we shouldn't expect much impact at all, then, from the tie-in in early next year with the new concentrator going up?

Not to the current concentrator, no. They're separate circuits. But we're using a ramp-up in both throughput and recoveries as we learn to run the new concentrator, which is a lot less complicated than the current concentrator. It's one SAG mill, one ball mill, one flotation circuit, rather than the one that we've put together, the original concentrator.

Okay. And then just a follow-up. You issued guidance for throughput for next year. Earlier this year, you gave guidance in a copper production of about 160 million pounds. Is it fair to assume that the throughput guidance, kind of assuming average grades and decent recoveries -- you're sort of -- your new guidance is implying something around 140 million to 160 million pounds. Is that fair?

Yes. That's fair. And that is the issue with trying to provide guidance in pounds when we really -- with recoveries, there are so many different levers. We make the throughput. We've maintained the throughput and recoveries in the GDP2 mill, for lack of a better term, and bring the GDP3 mill up to design by the end of the year. So that's where you get the range.

Okay. Thanks so much.

(Operator Instructions). Steve Parsons, National Bank Financial.

A quick question. I guess, maybe, even a comment a bit on the expansion, GDP3. My understanding now -- you've got one SAG mill, essentially, processing, call it, 55,000 tons a day. You're going to go to two SAGs with the downstream stuff processing 85,000 tons a day. Are you going to be -- ? Is SAG number one, essentially, which is currently processing 55,000 tons -- ? Are you going to be pulling that back to 42,000 tons? In other words --

No. In the new mill, the SAG will actually have smaller opening grates, and we've only got half the secondary grinding power in the new concentrator with one SAG mill there versus six small -- one ball mill -- sorry versus six small ones in the concentrator number one at the GDP2 mill. So, if we wanted to go to another 55,000-ton line on GDP3, we'd have to add another ball mill. And then we could take that SAG mill up to 55,000 tons.

Okay. I just thought that, if you're processing less tons through that one mill, that would -- that's going to be addressing the grind size issue and, hence, help with recoveries.

No. We'll get the number-one line figured out, and we'll run it hard. You don't want to idle -- you don't run these things at three-quarters capacity, Steve, as you well know. You drive it hard, and then we'll make up -- we're going to have lots of flexibility in this mill. I mean, if you look at it in both the mills -- look at it -- I mean, we thought at one juncture a couple years ago or three years ago that we may have to put a pebble crusher in the back end. But we're not doing that. We've got so much flexibility. So, we have lots of flexibility in getting increased tonnages out of both these mills now. It's going to be a pleasant addition to what we've been undertaking for the last few years.

Okay. And just another question, actually, on Prosperity. If you're going to be going out for financing and, presumably, offtake deals and associated debt along with that, does that then imply that you'll have to be putting out an updated mine plan and releasing that early in the new year?

No. We've got 43-101 compliant reserve, so we won't be updating the mine plan.

Okay. Sorry. I just thought you might have to come out with updated costing from the last study.

Oh. Yes. We finished the environmental assessment certificate, and we've got that confidence. Then we'll go through a costing exercise. But the mine plan itself -- there's no major adjustments to it. We're always looking for ways to improve it, but there's no need to redo the mine plan itself.

And I think, on the costing side, Steve -- I mean, we were pretty conservative when we moved that up from CAD800 million for Prosperity to over CAD1 billion. And, in reflection, looking back in terms of what we've done on GDP3, we know the cost of concrete. We know the cost of labor. I mean, there shouldn't be any aberrations. I mean, we've got a perfect comparable here.

So it's all about execution, and it's all about changing your scope. And, if you don't do that, then you should be right like we were with GDP3, on time and on budget.

Where people get out of whack is they start changing the scope, or they start -- you know, we should have this or maybe didn't see that. They hadn't done enough engineering on the front end. And they don't have the right -- they have some issues, maybe, on material movement, where their concentrator is going to be. Or they can't find rock.

We've had some pretty intense investigations on those things. And, at this juncture, we don't see a risk to that capital cost.

Fair enough.

I know a lot of people are talking about it, but, hey, proof's in the pudding. We just did a CAD300 million expansion, and we did it on time and on budget.

Excellent. Okay, Russ. Thank you very much.

Orest Wowkodaw, Canaccord Genuity.

Just a financial question. Earlier this year, I thought you guided to around CAD30 million of exploration expenses to run through the P&L. You're clearly running way below that. Where do you see that number in the fourth quarter, and what could we expect next year?

Well, that's a good question, Orest.

It's actually an overlapping question, Orest. I think John will probably take that. He's managing that area. But your assessment is correct.

Okay. So, for 2012, we did not end up spending as much as we thought we would. I think, for this quarter that we're in now, most of the work that we're doing is finalizing engineering work. So we're going to be CAD3 or CAD4 million in this quarter. For next year, between New Prosperity and Aley, we've budgeted CAD15 million for the year, which is down quite a bit from the CAD30 million that we had for this year. So it's going to be both below our budgeted amount and below our actual amount for 2012.

Okay. And the 2012 amount -- is it that much lower because you didn't spend it or because you capitalized it?

Because we didn't spend it.

Per my comments, Orest, we had capitalized (inaudible) related --

(Multiple Speakers)

And then, going forward, Orest, all -- we've spent enough money now. Now we've got to make the assets perform. So, if we look at our mine stake capital, we're probably -- in terms of sustaining capital, we're probably somewhere CAD5 million or CAD6 million we're going to be spending there. Any of the other stuff that has been capital has been already allocated under the GDP3 expansion.

So, effectively, that's why I think Peter was referring earlier -- you're going to see an increase in our earnings because of all those associated undertakings that we're doing in 2013.

Perfect. Thanks, Russ.

Thank you. I'm showing no further questions at this time. I would now like to turn the conference back over to management for closing remarks.

Okay, gentlemen and everybody on the call, thanks very much for joining us. We look forward to talking to you in the new year. I know it's a long ways from Christmas, but have a happy holiday season. Okay. Bye-bye.

ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day.